Written Commentary
STOCK INDEX FUTURES
Stock index futures are lower to kick off 2024 after a strong 2023, which saw double-digit gains for the three major averages.
Much of the selling today is being linked to the belief that the Federal Reserve may not be quite as aggressively lowering its fed funds rate this year compared to what was previously thought.
The 8:45 central time December final manufacturing PMI is expected to be 48.2.
The 9:00 November construction spending report is anticipated to show a 0.6% increase.
The fundamentals and technicals remain supportive to stock index futures despite a potentially less dovish Federal Reserve in 2024.
CURRENCY FUTURES
The U.S. dollar index is higher on ideas that the Federal Reserve may not be as accommodative this year as many analysts had predicted. It was just last week that the greenback fell to a five-month low.
However, it still appears that the Federal Reserve will start cutting rates earlier than some of the other major central banks.
Lower prices are likely for the U.S. dollar longer term.
There was some support for the euro currency on news that HCOB’s final euro zone manufacturing Purchasing Managers’ Index improved to 44.4 in December from November’s 44.2 but remained well below the 50 mark separating growth in activity from contraction. A preliminary estimate was for unchanged from November.
Bank lending to households in the euro zone increased by 0.5% year-on-year, which was the slowest pace since May 2015.
INTEREST RATE MARKET FUTURES
Futures are lower as Treasury yields on some issues increased more than 7 basis points. The yield on the U.S. 10-year Treasury note increased to above 3.96% on the first trading day of 2024, moving further away from the five-month lows of 3.78% touched last week.
Traders continue to believe the Fed will cut interest rates this year but not at the January meeting.
Financial futures markets are predicting there is a 13% probability that the Federal Open Market Committee will reduce its fed funds rate by 25 points at its January 31, 2024 policy meeting and an 87% probability of no change.
However, financial futures markets are currently suggesting the Federal Open Market Committee will reduce its fed funds rate by 25 basis points at its March 20, 2024 policy meeting.
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